US deficit hits $120b as fiscal cliff nears

The US federal government's deficit rose sharply in October, casting a cloud over the start of the fiscal year as President Barack Obama and Congress tackle the coming fiscal cliff and ballooning debt.

The Treasury Department reported the US budget deficit rose 22 per cent in October from a year ago, to $US120 billion ($A115.56 billion), as spending far outpaced revenue.

October, the first month of the federal government's fiscal year, typically runs a deficit. But the budget gap reported on Tuesday was much wider than the consensus analyst estimate of $US113 billion.

In fiscal 2012, which ended on September 30, the Obama administration trimmed the budget deficit by some $US200 billion to $US1.1 trillion, or 7 per cent of gross domestic product.

For the current fiscal year, it aims to reduce the deficit to below $US1 trillion for the first time in five years, following massive government outlays aimed at pulling the economy out of the severe 2008-2009 recession. The White House's target is a $US991 billion deficit, or 6.1 per cent of GDP.

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But the sustained deficit continues to push the country's debt load higher. The US debt currently stands at about $US16.2 trillion, and continued borrowing needed to finance the budget shortfall will send the government past the fixed $US16.39 trillion before the end of the year.

The Treasury can manage at that level without increasing the ceiling into March by using accounting manoeuvres, according to government officials. But at the same time politicians are battling over the fiscal cliff package of extreme spending cuts and tax increases due on January 1 unless politicians can reach a compromise to avoid them.

While the measures would slash the deficit by $US500 billion, economists warn they could tip the fragile economy back into recession.